E.I.

du Pont de Nemours and Company Report

by Van Anh Nguyen Strategic Management Forum Professor Donald Goeltz March 3rd, 2011

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E. I. duPont de Nemours & Company

HISTORY: Founded in 1802 by EleuthereIrenee du Pont, E.I. du Pont de Nemours and Company (DuPont) is an explosives American-based company headquartered in Wilmington, Delaware. Throughout its history of development, growth, merger and acquisition, the company offers variegated products and services in chemicals, agricultural, nutrition, communications, electronics, safety and protection, home and construction, transportation and apparel. DuPont has expanded operations in approximately 90 countries with 60,000 employees worldwide. Total revenues reached $31.5 billion in 2010. The company is known for its strong research and development with more than 75 labs in 12 countries worldwide.

VISION Our vision is to be the worlds most dynamic science company, creating sustainable solutions essential to a better, safer and healthier life for people everywhere. (www.DuPont.com)

MISSION, GOALS & OBJECTIVES: DuPont has a mission of sustainable growth, which we define as the creation of shareholder and societal value while we reduce our environmental footprint along the value chains in which we operate. (www.DuPont.com)

DIVERSITY: In DuPont we will have an organization in which people of all backgrounds can contribute and achieve their full potential in pursuit of personal and organizational excellence.

DuPont 3 As a global corporation, DuPont has promoted diversity and had racially and ethnically diverse body of employees across various functions and business units. Ellen J. Kullman has been the CEO of DuPont since January 1st, 2009 and the first woman to lead the company in DuPonts 209 year history.

HUMAN RIGHTS: DuPont is committed to the protection and advancement of human rights wherever we operate. The DuPont Human Rights Policy is based on our core values of Safety and Health, Environmental Stewardship, Ethical Behavior, and Respect for People. This policy operates in conjunction with and is supportive of our Business Conduct Guide, our Safety, Health and Environmental Commitment, our product stewardship programs, our regulatory compliance program, and our endorsement of the 10 Principles in the UN Global Compact. DuPont has taken serious steps concerning safety for its workers since the establishment of the company in 1802. Explosives and chemicals by nature are dangerous; therefore, the company pays a great deal of attention to safety for its workers. This step and other aspects show the companys respect and honesty for its employees.

PHILANTHROPY: DuPont is committed to improving the quality of life and enhancing the vitality of the communities in which it operates throughout the world. Through financial contributions and the volunteer efforts of its employees, DuPont supports programs and organizations that address social progress, economic success and environmental excellence all vital components of community sustainability."

DuPont 4 SUSTAINABILITY: The need for truly sustainable options for 21st century life remains one of the most critical challenges facing the global community. As a science company, DuPont has the experience and expertise to put our science to work in ways that can design in at the early stages of product development attributes that can deliver solutions that help protect or enhance human health, safety and the environment. We believe this is a direct route to a successful, profitable business that adds value to our customers, their customers, consumers, and the planet. DuPont has put sustainability into daily actions, short-term plans, and long-term goals. Its employees are asked to change printing practices, which will save the company $700,000 annually. DuPont also has improved logistics and distribution in a way that helps reduce NOx emissions by 4,000 kilogram and CO2 by 3,500 tons in 2007. Highest standards for safety, health, and environment have been applied at many plants. The company also makes goal to double investment in research and development of new renewable and sustainable products to $640 million by 2015 and has reached $660 million in 2010.

CURRENT SITUATION:

Headquarters E. I. DuPont de Nemours & Company headquarters is a fourteen-story high-rise building located in Wilmington, Delaware.

DuPont 5 Brand Concepts DuPont is a top and heritage-rich name domestically and globally. Because of a diversity of products and services, DuPont has a multitude of brands and trademarks. Many brands are familiar to customers in their homes, commercial environments, and communities. Some brands and trademarks are Corian, Kevlar, SentryGlas, Teflon, and so on. The brand name for the whole organization is DuPont The miracles of science. According to the former DuPont CEO Chad Holliday, the slogan implies the companys ability to provide science-based solutions for a better world. The companys direction has been on the right track, which focuses on research and development of renewable, recyclable, and sustainable products. The logo is the red DuPont in a horizontal oval with the black phrase The miracles of science underneath it.

Operations & Marketing DuPont has global operations in about 90 countries, more than 75 R&D labs in 12 countries, and a total of 60,000 employees worldwide. In the increasingly globalized age, DuPont focuses on a larger scale of global operations and markets. The company determines excellence in operations is not optional but crucial to success in the intensely competitive global marketplace. The DuPont Operational Excellence (OE) model has been implemented with the following aspects: y y y Asset productivity Capital effectiveness Operational risk management

This model is designed to lower costs, to minimize potential incurring injuries and damages, to increase efficiency, to maximize sustainable returns on operating assets, and

DuPont 6 enhance competitive position in the market. The following chart illustrates the stages of the model. The model helps DuPont and its clients cooperate and work together efficiently.

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The OE model has helped DuPont minimize costs and improve efficiency. The diversity of products and services requires DuPont to various versions of the models to adapt to the business types. Operating across industries and nations, DuPont also have different marketing strategies, plans, and programsfor the business units, industries, domestic and global markets.

CURRENT ISSUES Declining sales and revenues Affected by the economic recession, DuPonts sales and revenues decreased in chemicals, materials, coatings, safety and protection, electronic and communications segments and in global markets including the United States, Europe, Middle East, Africa, Asia Pacific, and Latin America in FY2009 compared to sales and revenues in FY2008. On the other hand, the

DuPont 9 agriculture and nutrition and the other segments recorded an increase in sales and revenues. The overall decrease is 14.5% in FY2009 compared to FY2008. Environmental legal charges DuPont has faced many legal charges regarding environmental adulteration. According to a report by the Political Economy Research Institute (PERI) at University of Massachusetts, DuPont is ranked number one with 17.15 millions of pounds of toxic air releases.1 The company has settled many class action lawsuits regarding environmental pollution. A class action lawsuit by 60,000 residents of Ohio and West Virginia in 2004 over the chemical C8, also known as ammonium perfluourooctanoate, or PFOA cost DuPont more than $340 million in settlement. Another class action lawsuit in New Jersey cost the company $8.3 million in settlement with 5,000 homes. Competition Being a large global organization, DuPont faces intense competition industry-wide and worldwide. Major competitors include large chemical companies in the United States, Europe, and Asia. Some of them are Dow Chemical Company, Monsanto Company, BASF AG, PPG Industries, Inc., Akzo Nobel N.V., PolyOne Corporation, Eastman Chemical Company, and others. In addition to these firms, DuPont also has to compete with smaller and more specialized firms around the globe.

GOVERNANCE ISSUES DuPont has a strong record of governance organization that is committed to having sound corporate governance principles and practices.

http://www.peri.umass.edu/Toxic-100-Table.265.0.html

DuPont 10 EXTERNAL ANALYSIS THE GENERAL ENVIRONMENT Demographic Segment It is estimated that the global population will reach 9 billion in 2050, of which 8 billion people reside in developing countries. Since DuPont operates in many developing countries, innovation and business practices need to be adapted to the demographic change.Developed markets have experienced declining birth rates and aging population, which will soon affect negatively labor resource as well as market demand. Those expected declines in labor and market demand can be offset by growing population, rising middle class, and increasing demand in emerging markets.

Sociocultural Segment An organizations values are those principles, ideas and ideals that its members adhere to, often without consciously recognizing that they are doing so. Values are the glue that holds an organization together in good times and especially in bad ones. Throughout more than 200 years of history, DuPont has grown from a family business into a global corporation. The company embraces good ideas, innovation, emphasis on employee safety, diversity and success, commitment to research, consumer products revolution, green revolution, and environmental impact.

Political/Legal Segment DuPont was charged for failure to report toxic chemical studies by the U.S. Environmental Protection Agency (EPA) in 2010. The required settlement that was worth $3.3

DuPont 11 million is to resolve 57 Toxic Substances Control Act (TSCA) violations. Another case is the violation of Comprehensive Environmental Response, Compensation and Liability Act (CERLA), which requires DuPont to pay for the cleanup costs

Technological Segment DuPont has strong R&D. They also invented many new technologies for the industries they participate in. As a science-based company, DuPont has a long and impressive list of patents and trademarks of many products, inventions, and technologies. The company has continuously improve the workplace so that it is safer, more efficient, and more comfortable. Billions of dollars are spent on R&D worldwide annually. Realizing the green trend in the economy, the company has invested in sustainable technology and renewable energy such as biofuel energy. The 2015 goals include reducing greenhouse gas emissions, water consumption by at least 30% at global sites, air carcinogens and completing an independent third-party verification of the effectiveness of their environmental management goals and systems at 100% of DuPonts global manufacturing sites. Current clean technologies products and services are BELCO Clean Air Technologies, STRATCO Alkylation, Global Engineered Solutions, IsoThermingHydroprocessing Technology, and training solutions.

Economic Segment During the financial crisis, the company experienced a revenue decrease of 14.8 percent in FY2009. DuPont has an advantage of a diversified stream of revenues because they operate in seven industries. Therefore, decrease of sales and revenues in some business segments and

DuPont 12 markets have been offset by increase in other ones. The following pie charts show DuPont 2010 sales by markets and segments. Total sales were $32.7 billion.

DuPont 2010 Sales by Markets - Total $32.7 billion

Canada 3% Latin America 11% Other 4%

US 35%

Asia/Pacific 22% Europe, Middle East, Africa 25%

DuPont 2010 Sales by Segments - Total $32.7 billion

Electronics & Communications 9% Safety & Protection 10% Other 3%

Agriculture & Nutritrion 28%

Performance Coatings 12% Performance Materials 19% Performance Chemicals 19%

DuPont 13 From the charts, one can see the U.S., Europe, Middle East, and Africa accounted for more than 80 percent of the market sales. Chemicals manufacturing including performance chemicals, performance materials, and performance coatings accounts for more than 50 percent of the sales by segments.Agriculture and nutrition segment amounts to nearly one third of the sales by segments. Diverse streams of revenues and global markets give DuPont advantage and flexibility to reduce risks of one or more markets or segments.

PORTERS FIVE FORCES MODEL OF INDUSTRY COMPETITION Threat of New Entrants HIGH Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels X X X X MEDIUM X LOW

Science-based businesses required capital invested in R&D, equipment, and plants, all of which are costly. Therefore, it is hard for new entrants. The threats can be low since two of DuPonts strongest strengths are R&D globally and capital. Nevertheless, product differentiation threat is high because many different kinds and sizes of firms in the chemical manufacturing industry offer comparable products at competitive prices. Threat of economies of scale and access to distribution channels are medium because of the increasing number of competitors and the growing global market.

DuPont 14 Bargaining Power of Buyers HIGH Switching Costs Industrys Product Quality is Unimportant Large Volume Buyers Standard/Undifferentiated Products MEDIUM LOW X X X X

The switching costs for buyers are low because competitors are able to offer comparable products at competitive prices. Product quality is important because chemicals easily and highly affect health and environment. Large volume buyers are medium because there is a balance between DuPonts reputation of product quality and the number of other companies that can offer comparable products. Standard/undifferentiated products are high because those products can be easily manufactured by any chemical-manufacturing firms.

Bargaining Power of Suppliers HIGH Suppliers Group Dominated by Few Importance of Customer to the Supplier Suppliers Product Important Input to Buyers Business Switching Costs MEDIUM X X X X LOW

DuPont has faced threats from volatile prices of raw material and energy. In addition, increasing demand of raw materials for manufacturing gives supplier more power. Therefore, the first two are considered medium. Suppliers products are highly important input to buyers business since DuPont is in manufacturing industry. Switching costs can be low because commodity would have similar prices.

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Threat of Substitute Products HIGH Differentiation of Substitute Product Price-Performance relationship of Substitute Product MEDIUM X X LOW

The threat of differentiation of substitute product is medium since science and technology products require R&D. DuPont is very strong at R&D and has thousands of patents and trademarks. Certain products cannot be substituted even with differentiation. The priceperformance relationship of substitute product is medium because

Rivalry among Competitors in Industry HIGH X X X X MEDIUM X LOW

Number of Competitors Industry Growth Rate Fixed Costs Product Differentiation Switching Costs

DuPont has a multitude of competitors of all sizes because it operates in several business segments. Within the chemical manufacturing, DuPont face competition domestically and internationally. Competitors include firms that are as large as DuPont such as Dow Chemical Company, medium to specialized firms. Industry growth rate is medium because chemical manufacturing is quite mature compared to other industries. Fixed costs are high because of plants, equipment, R&D, and labor. Product differentiation is also very high because as mentioned, chemical manufacturing industry is developed. The switch costs is high because of heavy capital required to initially invest in working capital.

DuPont 16 INDUSTRY KEY SUCCESS FACTORS Access to low-cost materialwill help DuPont improve operation margins since the company has low operation margins. Innovation Capabilityis DuPont strength in the industry. The company has thousands of patents and innovation s that have been applied in its plants and used for consulting services. Supply Chain Excellence is the key to the company success because supply chain management creates cost savings and time-to-market reduction. Ability to fund growth investmentsis very crucial since DuPont is a science-based technology. Available fund is very important to new R&D projects or new plants in new regions or countries.

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INTERNAL ANALYSIS E. I. duPont de Nemours & Company VALUE CHAIN ANALYSIS

Value chain analysis is the strategic model of a set of interrelated value-creating activities common to a wide range of firm. The diagram demonstrates support and primary activity that a firm operates. In addition to the value chain analysis, DuPont has a more complicated model that is discussed in Operations & Marketing part. The complexity is inevitable because the nature of DuPont company. It has operated more than 200 years and in seven industries offering a wide range of products and services. It is the Operating Excellence Model (OEM) that helps DuPont focuses on and manages efficiently the primary aspects of operations.

DuPont 18 Inbound logistics Inbound logistics handles all the initial incoming and processing activities before operations. DuPont has applied the six sigma logistics to manage efficiently inbound logistics regionally and globally. Operations Operations are the stage in which inputs are transformed into the final products. As discussed, DuPont uses Operation Excellence Model (OEM) to maximize values and manage resources efficiently during this process.

Outbound logistics Outbound logistics include activities necessary to deliver finished products to customers including warehousing and order fulfillment. DuPont employs a private internet transportation portal that allows employees around the global to instantly exchange freight data with carriers and suppliers.

Marketing and Sales These activities are to communicate with customers about products and their values. The goal is to get customers to purchase the products via different distribution channels and marketing strategies such as advertising, pricing, promotion, and place. DuPont has marketing facilities throughout the world to do these activites.

DuPont 19 Customer Services Customer services are to maintain and enhance products values including support, replacement, repair services, and so on. DuPont has a strong customer services team to carry out these activities.

RESOURCE-BASED VIEW VRIN Analysis of E. I. duPont de Nemours & Companys Resources and Capabilities Valuable Tangible Resources Plants R&D Labs Trademarks Brand Name and Patents Innovative of Products X X X X X X X X X X X Rare Hard to Imitate Hard to Substitute

Intangible Resources Organizational Capabilities

Tangible Resources Tangible resources include firstly the fourteen-story headquarters located in Wilmington, DE. DuPont also has many plans across the United States and other countries. The plans include specialty science equipment.Financial numbers usually outweigh industry averages. In addition to plants, the company also operates 75 R&D labs in 12 countries. Intangible Resources The name DuPont itself is already a huge intangible asset. It is not just a brand name but also a heritage of over 200 year history. In addition, DuPonts R&D is granted hundreds and

DuPont 20 thousands of patents and trademarks worldwide. Each business segment has a score of brand names and trademarks. Organizational Capabilities DuPont has strong organizational capabilities. The company has achieved thousands of patents through its investment in R&D. Its labs and technologies are unique as well as effective marketing of these products and services to customers through its long-time reputation and heritage brand name. Continuing and continuously improving the current path, DuPont will be able to maintain its leading position in the market and competitive advantages in the global market.

SW/OT Matrix Format

Opportunities y y y Emerging market growth Strategic global M&A Growing demand for environmentfriendly products Alternative energy market

Threats y y y Global economic crisis International market risks Tightening environmental regulations Volatile energy and raw materials prices

Strengths y Strong R&D y Diverse range of products and services y Leading position in the market y International

y y

R&D for environmentalfriendly products and alternative energy M&A foreign firms Generate more

Diversify services and products portfolios Diversify geographic operations Purchase

DuPont 21 operations Strong financial figures M&A revenues from Include new products and services commodity options Backward Integration

y y

Weaknesses y Lawsuits y Legal and environmental charges y Declining market share y Low operation margin and liquidity

y y y y

Settle lawsuits Reduce minimum pollutant wastes M&A to increase market share Offshore manufacturing to reduce costs

Pay attention to environmental issues in global operations Pay attention to legal issues both international and local Improve operation margin and liquidity

RECOMMENDATIONS International expansion DuPont is very strong at M&A and joint ventures. Continuing doing so will help the company expand its market share in the world and to compete with other major competitors.

Environmental legal charges Environmental concerns have been growing. In addition, DuPont has faced many legal charges regarding environmental pollution and millions of dollars of settlements. Paying more attention to environmental issues is necessary for the company to avoid class action lawsuits regarding environment and huge settlement fees accordingly. In addition, doing so will help improve the companys green image. With strong R&D, strict health and safety policies, and

DuPont 22 excellent management, DuPont should be able to find out new cleaner and safer technologies than the current ones.

Improve operation margins While having strong financial figures compared to the industry averages, DuPont has low operation margins. The company should consider different strategic management to improve operation margins such as lowering costs of production. Strategies for E.I. du Pont de Nemours and Company CURRENT STRATEGY RECOMMEND STRATEGY y BUSINESS STRATEGY y y Differentiation Focus Differentiation y Differentiation in products, services, and brand images y Develop new brand names and intangible assets Introduce improved products to extend industry life cycle y CORPORATE STRATEGY y Growth Merger and acquisitions Join ventures Diversification y y y y y Enhance pricing strategy Vertical integration Related diversification Unrelated diversification Wholly-owned subsidiaries Continue current strategies of M&A and joint ventures

INTERNATIONAL STRATEGY y Multi-domestic

ENTREPRENEURIAL STRATEGY y y Differentiation Competitive: Strategic and Tactical Logistics y Innovative products, services, and logistics

DuPont 23 IMPLEMENTATION

DuPont formulates different strategies for various business segments and units within the organization. The company uses contemporary approach together with its own models that suit the businesses. The above diagram the relationships of formulating, implementing, and controlling strategies. Behavioral control is interactive between strategic control and implementing strategies. Information control is between formulating strategies and strategic control.

OVERALL OUTLOOK E.I. du Pont de Nemours and Company is not just a business as many others. The name itself is reputation and heritage. In addition to that, the company has grown from a family business into a global corporation. It has a firm and leading position in the market as well as strong expansion and growth outlook. While many businesses suffered from a great deal of losses during the economic recession, DuPont has been able to maintain its relative revenues and sales thanks to its diverse streams of incomes from seven business segments and global markets.

DuPont 24 Strong R&D certainly gives DuPont an advantage particularly for the renewable, sustainable, and clean technologies. The market-drive science research reflects the growing concerns about the global environment and meets the increasing global demand for clean energy and products for a better world. Furthermore, global operations allow flexibility and adaptability to social, economic, and demographic changes. With M&A, join ventures, and foreign subsidiary activities, DuPont has been focusing on expanding its global operations and R&D. The business model is very advanced and unique across industries and in the world. Overall, DuPont has a very firm background, successful present business operations, and promising future outlook in the rapidly changing world. Hence, E.I. du Pont de Nemours and Companys outlook is very positive and visible.

DuPont 25 Work Reference: DuPont website: http://www2.dupont.com http://www2.dupont.com/Consulting_Services/pt_BR/assets/downloads/OP%20E_White%20Pap er_FINAL_12%2014%2005.pdf http://yosemite.epa.gov/oa/EAB_Web_Docket.nsf/Filings%20By%20Appeal%20Number/972A A52D3BEADFE0852577FF0059A226/$File/Consent%20Agreement...1.pdf

DuPont Investor Relations: http://phx.corporate-ir.net/phoenix.zhtml?c=73320&p=irol-irhome

Datamonitor 360 Database Hoovers Company Records Lexis Nexis Database Plunkett Research Online Database

Articles: http://www.quickmba.com/strategy/value-chain/ http://www.msnbc.msn.com/id/5953878/ns/us_news-environment/t/dupont-settle-teflonpollution-lawsuit/ http://www.environmentalleader.com/2007/07/24/clean-air-act-violations-cost-dupont-70million/ http://www.legafi.com/lawsuits/news/705-dupont-settles-another-toxic-c8-class-action-lawsuit